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Understanding Collateral Re-use in the US Financial System

Author

Listed:
  • Sebastian Infante
  • Charles Press
  • Zack Saravay

Abstract

We document how primary dealers use and re-use collateral in the United States. Using confidential supervisory data, we map how collateral flows through individual dealers, identifying whether the collateral is encumbered or rehypothecated. From these data we estimate the degree of collateral re-use at the dealer level. We find a high degree of US Treasury re-use, for which we posit three possible drivers: (1) intermediation of cash, (2) intermediation of collateral, and (3) "stripping" and distribution of their safe asset benefits. This work contributes to research aimed at understanding how collateral circulation improves market functioning but may lead to fragility.

Suggested Citation

  • Sebastian Infante & Charles Press & Zack Saravay, 2020. "Understanding Collateral Re-use in the US Financial System," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 482-486, May.
    • Handle: RePEc:aea:apandp:v:110:y:2020:p:482-86
    DOI: 10.1257/pandp.20201099
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    File URL: https://doi.org/10.3886/E120704V1
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    Citations

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    Cited by:

    1. Julliard, Christian & Pinter, Gabor & Todorov, Karamfil & Yuan, Kathy, 2022. "What drives repo haircuts? Evidence from the UK market," Bank of England working papers 985, Bank of England.
    2. Jank, Stephan & Mönch, Emanuel & Schneider, Michael, 2021. "Safe asset shortage and collateral reuse," Discussion Papers 39/2021, Deutsche Bundesbank.
    3. Thomas Michl & Hyun Woong Park, 2023. "Shadow Banks and the Collateral Multiplier," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 49(2), pages 156-175, April.
    4. Huh, Yesol & Infante, Sebastian, 2021. "Bond market intermediation and the Role of Repo," Journal of Banking & Finance, Elsevier, vol. 122(C).

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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